Energy Co. Hopes Spinoff Would Lead to More ESG Investors

Jericho Energy Ventures Inc. (JEV:TSX.V; JROOF:OTC; JLM:FRA) is exploring the potential of spinning off its hydrogen platform from its oil and gas assets, profits from which have been financing its environmental breakthroughs for at least three years.

"At an accounting level that makes sense, but many of the funds we've been talking to have mandates that forbid them from investing in fossil fuels," Jericho Director Allen Wilson told Global Stocks News (GSN) in a release from Jericho.

"Having an oil division buried in the hydrogen business is constraining the relationships we can form, and our access to capital," Allen said.

The objective of the proposed spin-off is "to create two independent, streamlined, pure-play companies focused on becoming leaders in their respective markets," the company has said. "Each of the businesses would have a clear focus, an appropriate capital structure, a distinct and compelling investment thesis, and focused investments across its portfolio to deliver superior results."

Splitting the company would enable the hydrogen division to "expand potential sources of financing to include ESG (environmental, social, and governance) funds," the company said in the release. ESG assets are on track to pass US$40 trilling by 2030, according to a recent ESG report from Bloomberg Intelligence.

Atrium Research analysts Nicholas Cortellucci and Ben Pirie in an April 18 research note wrote they "view a potential spinoff as a great outcome for shareholders as the value of both JEV's O&G [oil and gas] and hydrogen assets will be better appreciated in their own separate entities."

On the hydrogen front, "the proposed transaction will allow the new entity to attract energy transition and ESG investors, which previously shied away due to the hydrocarbon aspect," noted the analysts, who maintained their Buy rating and CA$0.50 per share target price.

The 'Breen Effect?'

Jericho's major backers among its shareholders includes Ed Breen, executive chairman and CEO of DuPont; Belzberg & Co., led by Strauss Zelnick, chairman and CEO of video game giant Take-Two Interactive; McKenna & Associates, led by Andrew J. McKenna; the Graves family, a multi-generational U.S energy asset owner and operator; and Frank Drendel, founder and chairman emeritus of CommScope.

The Wall Street Journal has called Breen a "breakup expert" for transforming companies like Tyco International and DowDuPont into more efficient and focused companies.

"This model aligns perfectly with that of Jericho Energy Ventures Inc., a small company that Breen has invested in," noted AllPennyStocks.com, which said the "Breen effect" could be "permeating into Jericho's plans to build shareholder value."

Brian Williamson, Jericho's chief executive officer told GSN that "our skills, knowledge and experience in traditional energy assets has served us well."

"But as we move up the investor chain to institutional investors, these funds are focused on the transition away from fossil fuels," Williamson continued. "That is the largest growing pool of capital in the marketplace. For us to access those pools, our hydrogen assets need to stand on their own. At the same time, our oil and gas assets are getting lost in the hydrogen story. Sometimes separation is necessary for the good of the children. We feel we are at that point."

AllPennyStocks.com noted that Breen's investment in the company is a "signal worth paying attention to."

"Sound familiar? It should because it is right out of the Breen playbook that generated so much wealth with his involvement in larger companies," the site said of Jericho's possible breakup.

The Catalyst: A Pure-Play Hydrogen Stock

If the spinoff is completed, the shares of Jericho Energy Ventures, representing its oil and gas business, would be expected to remain on the TSX Venture Exchange under JEV. However, the company also stressed, "there are no guarantees regarding the terms, timing or completion of this process."

"We believe existing JEV shareholders stand to benefit from the growth prospects of owning both pure-play H2 and Oil and Gas enterprises, with each focused on maximizing value and becoming a leader within its sector," Williamson said.

Subsidiary Hydrogen Technologies' Dynamic Combustion Chamber™ (DCC) boiler burns hydrogen and oxygen in a vacuum chamber to create high-temperature water and steam with no greenhouse gases or other pollutants. The only by-product is water, which is recycled. It's meant to replace existing boilers that burn coal, natural gas, diesel, or fuel oil.

Last year, two of JEV's associated hydrogen hubs, the Midwest Alliance for Clean Hydrogen (MachH2) and the Pacific Northwest Regional Hydrogen Hub (PNWH2), were selected for up to US$1 billion each from the U.S. Department of Energy's Regional Clean Hydrogen Hubs (H2Hubs) program.

Jericho also announced in October that it had signed a joint venture and fabrication agreement (MOU) with Kansas-based, 125-year-old Superior Boiler, a global leader in producing boilers and equipment for industrial and commercial applications, to manufacture the DCC™ boiler.

Another hydrogen portfolio company, Supercritical Solutions Ltd., completed a green hydrogen demonstrator in Northeast England, JEV announced in December.  Supercritical Solutions is also backed by Anglo-American and Chris Sacca's Lower-Carbon Capital.

'Moving With the Times'

Jericho is "moving with the times" with hydrogen, "a fuel of the future," Technical Analyst Clive Maund of CliveMaund.com has noted.

The world will need more hydrogen technology and projects to meet a net-zero emissions scenario by 2050, according to the International Energy Agency.

It is a "uniquely versatile energy carrier," according to a report by the Hydrogen Council. "It can be produced using different energy inputs and different production technologies. It can also be converted to different forms and distributed through different routes — from compressed gas hydrogen in pipelines through liquid hydrogen on ships, trains or trucks, to synthesized fuel routes."

Deloitte noted in a recent report on the outlook for the oil and gas industry that Jericho is not alone in pivoting toward clean energy from fossil fuels.

"The oil and gas (O&G) industry earned record profits in 2022, providing ample cash flow to fund their strategies in 2023," Deloitte noted. "And while O&G companies recognize geopolitical and macroeconomic uncertainty in the year ahead, they've also been given a clear mandate to secure supply in the short term while transitioning to cleaner energy in the long term."

Ownership and Share Structure

Around 35% of Jericho's shares are held by management, insiders, and insider institutional investors, the company said. They include CEO Brian Williamson, who owns 1.2%; founder Allen Wilson, who owns 0.76%; and board member Nicholas Baxter, who owns 0.44%, according to Reuters' latest research.

Around 10% of shares are held by non-insider institutions, and approximately 55% are in retail, the company said.

On March 6, 2023, JEV completed an insider-led private placement financing, above the current share price, for gross proceeds of CA$2.23 million.

JEV's market cap is CA$45.91 million, and it trades in a 52-week range of CA$0.33 and CA$0.16. It has 259.28 million shares outstanding, about 190 million floating.

Important Disclosures:

1. Jericho Energy Ventures Inc. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000. In addition, Jericho Energy Ventures Inc. has a consulting relationship with an affiliate of Streetwise Reports, and pays a monthly consulting fee between US$8,000 and US$20,000.
2. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Jericho Energy Ventures Inc.
3. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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